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The Ultimate Guide to NFT Taxes in 2022

The Ultimate Guide to NFT Taxes in 2022

How much do you pay in taxes when you sell an NFT? 

Unfortunately, there isn’t a simple answer to that question. The tax rate that you pay can vary depending on multiple factors such as how long you held your NFT and how the price of your NFT has changed since you originally received it. 

We know that trying to navigate all of this can be complicated. So in this guide, we’ll break down everything you need to know about NFT taxes as a buyer, a seller, or a creator. We’ll also walk through four simple strategies that can help you reduce your NFT tax liability.

What is an NFT? 

NFT stands for non-fungible token. It’s a fancy term for a unique digital asset that’s verified by blockchain technology. 

An NFT may be a JPEG, an MP4, or even a GIF. Each NFT comes with unique IDs and a verified transaction history that shows who minted it, who created it, and who has previously owned it. 

In 2021, NFTs started coming into prominence as both a way for creators to get fair compensation for their work and an exciting new type of investment asset. In March of that year, an NFT artwork by the artist Beeple sold for a stunning $69 million. 

How are NFTs taxed? 

Just like traditional cryptocurrencies like Ethereum and Bitcoin, NFTs are treated as a form of property for tax purposes.

Like other forms of property such as stocks, bonds, real estate, or traditional artwork, you incur capital gains or capital losses when you dispose of the property, or in this case when you dispose of the NFT. 

What NFT transactions are taxable? 

The following transactions are subject to capital gains tax depending on how the price of your crypto-assets has changed since you originally received them. 

Buying an NFT with cryptocurrency

Buying NFT with crypto example

Selling an NFT for fiat or cryptocurrency

Selling NFT for fiat

Trading an NFT for another NFT

Trading NFT for another NFT

Meanwhile, income earned from primary or secondary NFT sales as a creator is considered ordinary income and taxed accordingly.

Music NFT taxes example

What NFT transactions are non-taxable? 

The following NFT transactions are considered non-taxable. 

  • Buying an NFT with fiat currency 
  • Transferring NFTs between different wallets 
  • Donating an NFT

What is the tax rate on NFTs? 

The tax rate you will pay on your NFT transactions can vary depending on your specific situation. Let’s run through a few common scenarios. 

Collectible tax rate 

The IRS treats collectibles as a special class of capital asset subject to its own specific rules. If your NFT is considered a “Collectible”, you will need to pay a maximum tax of 28%, which is slightly higher than the typical long-term capital gains tax rate. 

 The IRS defines a collectible as:

  • Any work of art,
  • Any rug or antique,
  • Any metal or gem,
  • Any stamp or coin,
  • Any alcoholic beverage, or
  • Any other tangible personal property that the IRS determines is a "collectible" under IRC Section 408(m).

For specific NFTs such as digital art, it's reasonable to assume they fall under the "work of art" collectible category.

Similarly, it's reasonable to assume that "trading card-like" NFTs, such as those on the NBA Top Shot platform, will also be treated as collectibles. Physical trading cards have historically been treated the same way. 

At this time, it’s not clear whether profile-picture NFTs will be considered collectibles. The conservative approach is to treat them as such and pay the collectible tax rate on long-term sales.

Long-term capital gains rate

Some NFTs do not fall into the “collectibles” category. For example, certain NFTs represent ownership of real-world assets or staking positions in decentralized protocols like Uniswap. 

In cases like this, the NFT would likely be taxed at the typical long-term capital gains rate if it is sold after 12 months. Currently, long-term capital gains are capped at 20%. 

If you’re not sure what category your NFT falls into, you should reach out to a tax professional with details about your specific situation. 

Short-term capital gains rate

If you sell an NFT within 12 months of initially receiving it, you’ll be subject to the short-term capital gains tax rate whether it falls into the collectibles category or not. This can be up to 37% of your gains, depending on your personal income tax bracket. 

Income tax rate

As mentioned earlier, revenue from NFT sales is taxed as ordinary income for creators. Like short-term capital gains, ordinary income is taxed from 10-37% at the federal level.

How to report your NFT taxes 

Gains and losses from your capital assets (including your NFTs) get reported on IRS Form 8949 and then included with Schedule D. 

If the NFTs you are trading are considered to be collectibles, it's recommended that you report all of your collectibles disposals on a separate 8949 from your other capital assets. Add each collectible disposal to 8949 and sum up your total short-term and long-term collectibles trading gains/losses for the year.

Since collectibles are subject to a different tax rate than the rest of your capital assets, filling out a separate 8949 can make it easier for you to accurately report capital gains and losses. 

After you've calculated the total gains (or losses) of your long-term collectibles trading, use the sum to complete the 28% Rate Gain Worksheet. You will ultimately report these calculations on your Schedule D along with your short-term disposal calculations.

Collectibles tax rate for NFT's

How can I reduce my NFT taxes? 

Wondering how you can reduce your NFT tax liability? Here are 4 strategies that can help. 

Hold your NFTs for the long-term 

The simplest way to reduce your NFT taxes is to simply hold your NFTs for longer than 12 months. As discussed earlier, the long-term capital gains rate is lower than the short-term capital gains rate. 

Dispose of your NFTs in a low-income year

Your tax bracket is determined by your ordinary income in a given year. As a result, many investors choose to dispose of NFTs and cryptocurrencies in years where their annual income is low to minimize their tax liability. 

Buy with fiat currency instead of appreciated cryptocurrency 

Remember, you incur capital gains based on how much the price of your coins has changed since you originally received them. As a result, investors who’ve held Ethereum for multiple years and seen significant appreciation will likely incur a large tax liability if they use their coins to buy an NFT. 

Some NFT marketplaces offer the ability for investors to buy NFTs with fiat currency. This can be advantageous from a tax perspective. Because making purchases with fiat is not considered a disposal of property, investors who choose this method do not incur capital gains. 

Tax-loss harvesting with NFTs

If you sell your NFTs at a loss, you can claim a capital loss on your tax return. NFT capital losses can offset capital gains from other property disposals (such as profits from NFT, crypto, and stock sales) and up to $3,000 of income. 

For more information, check out our ultimate guide to tax-loss harvesting.

How are NFT gas fees taxed? 

Gas fees paid to acquire or dispose of an NFT can be added to your cost basis and/or gross proceeds and potentially reduce your tax liability in a disposal event. 

Gas fees related to acquiring an NFT can be added to your cost basis.

Gas fee tax for buying NFT

Gas related to selling or disposing of your NFT can be added to your gross proceeds.

Gas fee tax for selling NFT

How are NFTs in play-to-earn games taxed? 

Cryptocurrency games allow players to own and trade in-game assets in the form of NFTs. For example, the popular game Axie Infinity allows players to purchase, breed, trade and battle with NFT avatars known as Axies. 

It’s likely that most transactions involving in-game NFTs will be subject to the same rules as other NFTs. Buying an NFT with cryptocurrency and selling an NFT within a game like Axie Infinity will likely be considered disposal events subject to capital gains tax. 

For more information, check out our guide on how cryptocurrency games are taxed

How are NFT airdrops taxed? 

I received tokens in an airdrop. How is this taxed? 

In 2022, Bored Ape Yacht Club airdropped ApeCoin tokens to holders. In cases like these, recipients recognize ordinary income based on the fair market value of their tokens at the time of the airdrop. 

For more information, check out our complete guide to airdrop taxes

I received an NFT in an airdrop 

Receiving an NFT in an airdrop should also be considered ordinary income at the time of receipt. In cases like these, you can estimate your income by looking at the fair market value of NFTs with similar characteristics at the time of the airdrop. 

Do you pay sales tax when you buy NFTs? 

At this time, it’s unclear whether investors will be required to pay sales tax on their NFTs. Because sales tax is handled on the state and local levels, it will likely be years before investors receive more clarity on this matter.

How to calculate taxes on your NFT transactions in minutes 

If you have multiple NFT transactions in a tax year, manually calculating your NFT tax liability can get complicated. Luckily, there’s an easier way. 

With CoinLedger’s NFT tax software, you can calculate taxes on your NFT transactions in minutes. Here’s how the process works. 


1. Find the public wallet address for your Ethereum wallet. 

NFT Ethereum wallet taxes

2. Copy and paste your Ethereum wallet address into CoinLedger. Your complete transaction history will be pulled directly from the blockchain, including any NFT transactions you may have.

NFT Tax Software

3. You’ll be able to view all of your NFT transactions, as well as any NFTs that you currently hold, on your CoinLedger dashboard. 

NFT tax calculation software

And that’s it! Once you import your transaction history from other wallets and exchanges, you’ll be able to generate a complete tax report with the click of a button. 

Looking for an easy way to track your NFT taxes? 

Trying to report your NFT taxes manually can be difficult. With crypto tax software like CoinLedger, the process has never been simpler. The platform integrates with the Ethereum blockchain and NFT marketplaces like OpenSea so you can file your taxes in minutes.

Get started with a completely free preview report today. 

Frequently asked questions 

Let’s summarize what we’ve discussed so far by answering a few commonly asked questions about NFT taxes. 

Are NFTs taxable? 

Yes. Like other crypto-assets, NFTs are considered property and can be subject to both capital gains and income tax. 

How are NFT sales taxed? 

When you sell an NFT, you incur a capital gain or loss depending on how the price of your NFT has changed since you originally received it.

Do I have to report NFTs on my tax return? 

Yes. NFT disposals should be reported on Form 8949 of your tax return. 

Are NFT losses tax deductible? 

Capital losses from NFTs can be offset against capital gains and reduce your tax liability for the year.

...

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